On June 30, 2009, the State of Indiana filed charges against Vaughn A. Reeves, Sr.; Vaughn A. Reeves, Jr.; Jonathan Christopher Reeves; and Joshua Craig Reeves (collectively, the Reeves) for violations of the Indiana Securities Act. The felony charges against the Reeves concern their alleged participation in an affinity fraud investment scheme that raised at least $120 million from investors in church bonds. The Commission charged the Reeves with violations of the federal securities laws, in July 2005, based on related conduct.

The State of Indiana alleged that the Reeves violated state securities laws by misusing money raised from the purchasers of church bonds sold through Alanar, Inc. (Alanar), an entity controlled by the Reeves. According to the State of Indiana, the Reeves’ scheme involved approximately 300 separate bond issuances that raised at least $120 million from investors. The State of Indiana alleged that the Reeves’ scheme was an affinity fraud in that Alanar’s marketing strategy was devised to appeal to the Christian faith of potential investors. The court papers filed in the state criminal prosecution alleged that the Reeves misused funds from certain bond issuances to conceal from investors the true rate of default on Alanar’s bonds. The State of Indiana further alleged that the Reeves received more than $6 million in ill-gotten gains from their actions. The Reeves were charged with 10 separate felony counts of violating the Indiana Securities Act and each of them could face up to eight years in prison per charge if convicted.

In July 2005, the Securities and Exchange Commission (Commission) filed a civil action against the Reeves and other defendants alleging, among other things, that the Reeves violated the antifraud provisions of the federal securities laws by misusing investor funds and improperly diverting investor funds to themselves and entities they controlled. The Commission further alleged that the Reeves’ scheme raised more than $120 million from investors in church bonds, including $50 million from investors in related bond funds. On July 26, 2005, the United States District Court for the Southern District of Indiana issued an Order of Permanent Injunction against the Reeves and various entities they controlled which, among other things, permanently enjoined the Reeves from violating the antifraud provisions of the federal securities laws, froze their assets, and appointed an independent monitor over the Reeves’ entities. In December 2005, the Court appointed a receiver over the Reeves’ entities. The Court subsequently approved a plan that provides for a distribution of funds to harmed investors through the Court-appointed receiver. On May 19, 2008, the Court entered final judgments against the Reeves which, among other things, required them to collectively pay more than $7.88 million in disgorgement, prejudgment interest and civil penalties. For additional information regarding the Commission’s case, see LR-19314 (July 27, 2005) and LR-20629 (June 25, 2008).